Yes, you must report savings account interest on your tax return if you earned more than $10

The IRS requires you to report all interest income, no matter how small. Your bank will send you a Form 1099-INT if you earned $10 or more in interest during the tax year. Even if your bank does not send the form, you still owe tax on the interest—the $10 threshold is just when the bank is required to report it to the IRS.

Interest counts as ordinary income and is taxed at your regular income tax rate. This applies to savings accounts, money market accounts, certificates of deposit (CDs), and any other account where the bank pays you interest. The interest is taxable in the year you earn it, not when you withdraw the money.

If you earned less than $10 in interest, your bank will not send a 1099-INT, but you should still report the interest on your return. The IRS has records of what your bank reported, and leaving it off creates a mismatch that can trigger an audit notice.

Key Takeaways

  • Your bank sends Form 1099-INT when you earn $10 or more in interest, but you owe tax on all interest income regardless of the amount.
  • Interest is taxed as ordinary income at your regular tax rate, not at a special rate.
  • You report interest on your tax return in the year you earn it, even if you do not withdraw the money.
  • The IRS matches your return to the 1099-INT your bank files, so omitting interest can trigger an audit notice.
  • High-yield savings accounts and CDs generate more interest, which means a larger tax bill on that income.

When your bank sends Form 1099-INT

Banks mail Form 1099-INT by January 31 of the year after you earned the interest. If you have multiple accounts at the same bank, the interest may be combined on a single form. If you have accounts at different banks, each bank sends its own 1099-INT.

You receive Copy B of the form in the mail; the bank also sends Copy A to the IRS. Keep your copy with your tax records. If you do not receive a 1099-INT by early February, contact your bank and ask them to resend it or provide a statement showing the interest you earned.

Some banks now offer to send tax forms electronically instead of by mail. If you set up e-delivery, you will receive the form through your online banking portal or by email.

How to report interest on your tax return

On a federal return, you report interest income on Schedule 1 (Form 1040), line 8. Write the total interest from all your accounts on that line. If you file Form 1040-SR (for people 65 and older), interest goes on line 1b of that form instead.

If you received a 1099-INT, attach it to your return or keep it with your records. The IRS already has a copy, so you do not mail it in, but you should have it available if you are audited. If you earned interest but did not receive a 1099-INT (because it was under $10 or the bank made an error), write the amount on Schedule 1 anyway and note that no form was issued.

State tax returns also require you to report interest income. Most states tax interest the same way the federal government does, though a few states exempt interest from taxation entirely. Check your state's tax instructions or contact your state revenue department to confirm the rule where you live.

Interest from different account types and what the tax impact looks like

A regular savings account at a traditional bank typically earns 0.01% to 0.05% annual interest. On a $10,000 balance, that is $1 to $5 per year—usually below the $10 reporting threshold. A high-yield savings account at an online bank currently earns 4% to 5% annually. On the same $10,000, that is $400 to $500 per year, which you must report and pay tax on.

A CD with a $10,000 deposit at 5% earns $500 in interest over one year. If you hold the CD for less than a year, you earn proportionally less. Some CDs have penalties for early withdrawal, but the penalty does not reduce your taxable interest—you still owe tax on the full amount earned, even if you pay a penalty to access your money early.

Money market accounts work like savings accounts for tax purposes: all interest is taxable income. If you move money between accounts during the year, each account reports its own interest separately, and you add them all together on your return.

What happens if you do not report interest income

The IRS receives a copy of every 1099-INT your bank files. If your tax return does not include that interest, the IRS computer system flags it as a mismatch. You will receive a notice asking you to explain the discrepancy or pay the tax owed plus interest and penalties.

The penalty for failing to report income is usually 20% of the unpaid tax, plus interest that accrues from the original due date. If the IRS determines the omission was intentional fraud rather than an honest mistake, the penalty can be as high as 75%. Even if you did not receive a 1099-INT, you are still responsible for reporting the interest.

If you receive an audit notice about unreported interest, respond promptly with documentation of the interest earned. If you can show the omission was a good-faith error, the IRS may reduce or waive penalties, though you will still owe the tax and interest.

Interest from joint accounts and accounts held by minors

If you own a savings account jointly with another person, the bank may issue a single 1099-INT in one person's name, or it may split the interest between two forms. Check the form carefully to see whose name and Social Security number appear. You are responsible for reporting only your share of the interest, but you need to coordinate with the other account holder to make sure you do not both claim the full amount.

If a parent opens a savings account for a minor child, the interest is taxable to the child, not the parent. The bank will issue the 1099-INT in the child's name and Social Security number. The child must report the interest on their own tax return, even if the parent paid for the deposit. A child with no other income may not owe federal tax on the interest if it falls below the standard deduction, but they should still file a return to document the income.

Frequently Asked Questions

Do I have to report interest if I earned less than $10?

Yes. The $10 threshold is only when your bank must send you a 1099-INT. You still owe tax on all interest income, and the IRS expects you to report it. If you earned $5 in interest and do not report it, you risk an audit notice if the IRS has any record of the account.

Can I deduct the taxes I pay on interest income?

No. Interest income is added to your other income and taxed at your regular rate. You cannot deduct the interest itself or the tax you pay on it. However, if you paid investment fees to earn that interest, you may be able to deduct those fees in some cases—consult a tax professional about your specific situation.

What if my bank made a mistake on the 1099-INT?

Contact your bank immediately and ask them to issue a corrected form (Form 1099-INT with "CORRECTED" printed on it). The bank will send the corrected form to you and the IRS. File your return using the corrected amount. If you already filed and the error was in your favor, the IRS may send you a notice; if the error was against you, you can file an amended return.

Is interest from a savings account taxed differently than interest from a CD?

No. Both are taxed as ordinary income at your regular tax rate. The only difference is the amount of interest earned. A CD typically earns more interest than a savings account, so your tax bill will be larger, but the tax treatment is identical.

Do I report interest on my state tax return too?

Most states require you to report interest income on your state return the same way you do on your federal return. A few states do not tax interest at all. Check your state's tax instructions or contact your state revenue department to find out the rule where you live.